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MEMBER DIARY

Cap and Trade Will Hurt Virginia

In the October 2, 2009 Virginia Attorney General’s debate, my opponent and I had the opportunity to ask each other one question regarding our top priorities. His top priority – “global warming,” which of course comes along with a raft of legislative and regulatory burdens and taxes. At the federal level, this legislation is called “cap and trade.”

The (so-called) “Cap and Trade” legislation is meant to restrict greenhouse gas emissions from industry, mainly carbon dioxide from the combustion of coal, oil, and natural gas. A better name for this legislation would be “Ration and Tax.” This is because under this bill, the government would require anyone who uses electricity, who drives a car, or who runs a business to hold a “ration coupon” for his or her emissions, with the number of coupons being reduced every year to force a reduction in emissions, thus producing higher energy taxes for the average citizen. The net effect of this “Ration and Tax” would be economic harm and a loss of jobs for our citizens, and all without having a noticeable positive impact on the global climate. The coal industry, which provides over half of Virginia’s electricity, would be particularly hard hit by this bill.

The economic costs of “Ration and Tax” are well documented. This year’s House bill was estimated by the Heritage Foundation to lose 2.5 million net jobs by 2035. The loss of economic output: $9.4 trillion. The jobs lost in Virginia: 52,700. The report also stated that by 2035, Virginian’s will see their electricity prices rise by $1,031.73 and their gasoline prices rise by $1.31 per gallon solely because of “Ration and Tax”. Peter Orszag, President Obama’s current budget director, forecast the scheme would cost $1 trillion over the next 10 years and $5-$7 trillion through 2050. The fact that the Senate version of this legislation requires an even bigger cut in emissions than the House version means that the negative impact of the Senate legislation is likely to be even greater.

Now, some say that “green jobs” created by “Ration and Tax” are going to offset these losses. However, all of the credible studies show that the NET jobs lost are substantial. A study for the Teamsters and Sierra Club – both allies of those advancing “Cap and Trade” – found: “Wage rates at many wind and solar manufacturing facilities… fall short of income levels needed to support a single adult with one child.” In Spain, the experience has been 2.2 real jobs destroyed for every “green job” created.

What is especially egregious about “Ration and Tax” is how little positive effect it will have on the global environment, a fact that even its supporters have been forced to acknowledge. The Environmental Protection Agency Administrator Lisa Jackson has been forced to concede that, “U.S. action alone will not impact CO2 levels.” Also, a study of cap-and-trade legislation by researchers at MIT has concluded: “The different U.S. policies have relatively small effects on the CO2 concentration if other regions do not follow the U.S. lead…The Developed Only scenario cuts only about 0.5 °C of the warming from the reference, again illustrating the importance of developing country participation.”

However, the U.S. press has reported that China and India, the two largest developing nations, which produce the most greenhouse gases, are unlikely to adhere to any carbon caps. Bloomberg News has reported that India’s Environment Minister Jairam Ramesh has stated that “India will not accept any emission-reduction target – period. This is a non-negotiable stand.” China has also made its objections known.

As Attorney General, I will use the tools of the office, including the 10th Amendment, to oppose “Ration and Tax” and to preserve the opportunity for Virginians to have the energy they need to be successful in today’s difficult economy.

US impact:
Jobs: Under [last year’s] bill that was rejected by the Senate (S. 2191)[that is similar to the Waxman-Markey HR 2454), the United States would lose between 1.2 and 1.8 million NET jobs in 2020 and between 3 and 4 million NET jobs in 2030. The primary cause of job losses would: lower industrial output due to higher energy prices, the high cost of complying with required emissions cuts, and greater competition from overseas manufacturers with lower energy costs.

Disposable income: Virginia would see disposable household income reduced by $1,073 to $3,479 per year by 2020 and $4,522 to $8,246 by 2030 (Figure 3).

Gross State Product: High energy prices, fewer jobs, and loss of industrial output are estimated to reduce Virginia’s gross state product (GSP) by between $4.3 and $5.9 billion per year by 2020 and $15.8 and $18.7 billion by 2030

This year’s Waxman-Markey bill (as reported out of the House Committee on Energy and Commerce) by The Heritage Foundation found that unemployment will increase by nearly 2 million in 2012, the first year of the program, and reach nearly 2.5 million in 2035, the last year of the analysis. Total GDP loss by 2035 would be $9.4 trillion. The national debt would balloon as the economy slowed, saddling a family of four with $114,915 of additional national debt. Families would also suffer, as the bill would slap the equivalent of a $4,609 tax on a family of four by 2035.[1]

Heritage is not alone in its assessment. The National Black Chamber of Commerce
[http://www.nationalbcc.org/images/stories/documents/CRA_Waxman-Markey_%205-20-09_v8.pdf ] and the Brookings Institution[3] also project huge job losses.

Economics:

Wall Street Journal: The Cap and Tax Fiction

http://online.wsj.com/article/SB124588837560750781.html

“ Despite House Energy and Commerce Chairman Henry Waxman’s many payoffs to Members, rural and Blue Dog Democrats remain wary of voting for a bill that will impose crushing costs on their home-district businesses and consumers. The leadership’s solution to this problem is to simply claim the bill defies the laws of economics.

“ … A closer look at the CBO analysis finds that it contains so many caveats as to render it useless.

“ For starters, the CBO estimate is a one-year snapshot of taxes that will extend to infinity. Under a cap-and-trade system, government sets a cap on the total amount of carbon that can be emitted nationally; companies then buy or sell permits to emit CO2.

“… The CBO’s analysis looks solely at the year 2020, before most of the tough restrictions kick in. As the cap is tightened and companies are stripped of initial opportunities to “offset” their emissions, the price of permits will skyrocket beyond the CBO estimate of $28 per ton of carbon. The corporate costs of buying these expensive permits will be passed to consumers.

“The biggest doozy in the CBO analysis was its extraordinary decision to look only at the day-to-day costs of operating a trading program, rather than the wider consequences energy restriction would have on the economy. The CBO acknowledges this in a footnote: “The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap.”

“ The hit to GDP is the real threat in this bill. The whole point of cap and trade is to hike the price of electricity and gas so that Americans will use less. These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. Consumers will cut back on spending, which in turn will cut back on production, which results in fewer jobs created or higher unemployment. Some companies will instead move their operations overseas, with the same result.

“When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill’s restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Economics

http://www.heritage.org/Research/EnergyandEnvironment/wm2553.cfm

July 21, 2009
Waxman-Markey: Homeowners, Small Businesses, and Farmers Hit the Hardest
by Ben Lieberman
WebMemo #2553
Homeowners
Waxman-Markey forces down emissions from fossil fuels and especially targets coal. As coal provides America with half of its electricity, these reductions in coal use will drive up electric rates by an estimated 90 percent by 2035. The impact in heavily coal-dependent states–for example, Indiana, Ohio, Kentucky, West Virginia, Missouri, and North Dakota all get more than 80 percent of their electricity from coal–will be even greater. Natural gas and heating oil prices will also be affected, as their prices are estimated to go up 55 percent and 56 percent, respectively.
For a household of four, those higher energy will cost an average $527 annually from 2012 to 2035. If there is a car parked in the driveway, add another $302 for the higher household cost of gasoline per year (about 30 cents more per gallon), thereby increasing the total energy bill to an average of $829 annually.
But higher direct energy costs are only part of the total household burden: Since nearly all other goods, from food to furniture, require energy to produce and transport, their costs will rise along with the price of energy. Furthermore, other provisions in the bill also mandate stringent one-size-fits-all national energy standards for new houses, which would also likely boost their price and reduce desired features.
Under Waxman-Markey, a household of four’s costs are estimated to rise by an average of $2,979 per year from 2012 to 2035.
Small Business Owners
Electric utilities and some other big businesses have cut special deals that allow them to comply for much less. Waxman-Markey allows for such deals by giving these companies free rights to emit carbon dioxide and other regulated greenhouse gases. But small businesses have largely been left out of this special interest game. They will instead face the same higher costs for energy and other products as homeowners. According to a 2008 National Federation of Independent Business poll, energy costs are the second biggest problem facing small business[1]: Waxman-Markey would only exacerbate those concerns.
Furthermore, by harming the overall economy, Waxman-Markey makes it more difficult for small business to operate. Under this legislation, gross domestic product (GDP) would decline by an average of $393 billion annually below where it would otherwise be from 2012 to 2035; cumulative GDP would decline by $9.4 trillion by 2035. This means that, thanks to Waxman-Markey, in the years and decades ahead small business owners will be operating in a weakened economy, making it even harder for them to attract customers, expand their business, and create jobs.
Overall, Waxman-Markey is a jobs killer–according to The Heritage Foundation analysis, it will result in over million net job losses (which includes any “green job creation”). But even those relative few green jobs, such as those associated with renewable energy sources like wind and solar power or the installation of energy saving devices in federal buildings, are not for small business. The bill’s Davis-Bacon Act provisions, which essentially mandate union wages for these projects, are very difficult for most small businesses to meet and would therefore largely exclude them. Thus, there is little or no upside for small business to offset this bill’s substantial drawbacks.
Farmers
Since farming is energy intensive, it will be hit hard by Waxman-Markey’s energy price hikes. In addition to higher diesel fuel and electricity costs, prices for natural gas-derived fertilizers and other chemicals will also rise. Everything else affecting agriculture, from the cost of constructing farm buildings to the price of tractors and other farm equipment, will also go up. Consequently, farm profits are expected to decline by 28 percent in 2012 and will be an average 57 percent lower from 2012-2035.
Furthermore, since Waxman-Markey is a unilateral measure, it would put American farmers at a competitive disadvantage: No other food-exporting nation has announced any plans to impose similar energy price boosting global warming measures on their own agriculture sector.
Of course, when farmers hurt, the rural economy around them suffers as well. In addition, rural Americans use 58 percent more energy than their urban counterparts, thus the impact of increased energy prices is highly disproportionate. Last minute measures to sweeten the deal for rural electric cooperatives will scarcely make a dent in this disparate impact.
Ben Lieberman is Senior Policy Analyst in Energy and the Environment in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation
[1]Bruce Phillips and Holly Wade, “Small Business Problems and Priorities,” National Federation of Independent Business Research Foundation, June 2008, pp. 7-8, at http://www.nfib.com/Portals/0/ProblemsAndPriorities08.pdf (July 21, 2009).

http://www.aei.org/docLib/EEO-03-July-09-g.pdf

Waxman-Markey: An Exercise in Unreality
By Steven F. Hayward and Kenneth P. Green

Two Questions about the Target
Waxman-Markey sets the ambitious target of reducing total U.S. GHG emissions by 83 percent below 2005 levels by the year 2050 (with intermediate benchmarks
at 2020 and 2030). Thus, the cap and the allowances sold pursuant to it will be lowered from a peak of 5.4 billion tons in 2016 to just a little over 1 billion tons in 2050. Before considering how the allowances are being allocated, it is worth concentrating for a moment on the overall emissions target for 2050. In 2005, the baseline year, the United States emitted a little more than 6 billion tons of CO2 and another billion tons of other GHGs such as methane and nitrous oxide. But CO2, as the byproduct of fossil fuel consumption and the most abundant GHG, is the principal focus of policy. An 83 percent reduction in CO2 emissions in 2050 would be slightly over 1 billion tons.

The first threshold question is: when were U.S. CO2 emissions from fossil fuel use last at 1 billion tons, the year 2050 target? From DOE historical statistics on energy consumption, it is possible to estimate that the United States last emitted 1 billion tons in the year 1910, when the nation’s population was only 92 million people, per-capita income (in 2008 dollars) was only $6,196, and total GDP (also in 2008 dollars) was about $572 billion—about one-twenty-fifth the size of the U.S. economy today (see table 1).

By the year 2050, however, the United States is expected to have a population of 420 million, according to Census Bureau projections—more than four times the population of 1910. In order to reach the 83 percent reduction target, per-capita CO2 emissions will
have to be no more than 2.4 tons per person—only one-quarter the level of per-capita emissions in 1910.

This suggests a second threshold question: when did the United States last experience per-capita CO2 emissions of only 2.4 tons? From the limited historical data
available, it appears that this was about 1875.

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2. Virginia will advocate for federal actions that will reduce net GHG emissions.
2A.The Governor should ask Congress to act as soon as possible to pass
comprehensive climate change legislation that includes the following key provisions:
• Establishes a mandatory economy-wide cap and trade program to reduce greenhouse gas emissions;
• Achieves at least a 25% reduction in greenhouse gases by 2020 and an 80% reduction below 1990 levels by 2050;

Page 32-
10. Virginia should consider a more aggressive GHG reduction goal.
10A. The Governor and General Assembly should consider adopting a more
aggressive GHG reduction goal that more closely reflects the Intergovernmental Panel on Climate Change (IPCC) recommendations. The IPCC recommendations call for reducing GHG emissions by 25% below the 1990 level by 2020, and 80% below the 1990 level by 2050. … Virginia will need to take additional actions to achieve the long-term reductions recommended by the IPCC.

[Excerpt of Press Conference in New Delhi, India, July 19, 2009, with Secretary of State Hilary Clinton:

http://www.state.gov/secretary/rm/2009a/july/126206.htm

SECRETARY CLINTON:
“But India’s own greenhouse gas pollution is projected to grow by about 50 percent between now and 2030. So, climate change would not be solved even if developed countries stopped emitting greenhouse gas emissions today, unless action is taken across the world.”

MR. RAMESH [Minister of Environment and Forests in the government of India]:
“ So, whether (India’s national action plan of climate change) will convert into legally binding emission (target) is the real question. And India’s position is — I would like to make it clear that India’s position is that we are simply not in a position to take on (a) legally binding emission reduction (target).”]

Section 707 requires the President to “direct relevant Federal agencies to use existing statutory authority to take appropriate actions” if the global GHG(not just CO2) concentrations exceed 450 ppm. Since we have no control over the emissions of China, India and Russia, we would be faced with additional steps to cut emissions to offset growth in foreign countries.

Green Jobs:

Study commissioned by the Teamsters and Sierra Club. February 2009:
“Low pay is not uncommon in the workplaces we profile: the lowest wage we found was $8.25 an hour at a recycling processing plant, but we also discovered jobs in manufacturing facilities serving the renewable energy sector paying as little as $11 an hour.

Wage rates at many wind and solar manufacturing facilities are below the national average for workers employed in the manufacture of durable goods. In some locations, average pay rates fall short of income levels needed to support a single adult with one child.

Some U.S. wind and solar manufacturers have already begun to offshore production of components destined for U.S. markets to low-wage havens such as China and Mexico.”

Green Jobs:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1358423

Green Jobs Myths

Andrew P. Morriss
University of Illinois College of Law; PERC – Property and Environment Research Center; George Mason University – Mercatus Center
March 12, 2009

Abstract:
A rapidly growing literature promises that a massive program of government mandates, subsidies, and forced technological interventions will reward the nation with an economy brimming with green jobs. Not only will these jobs improve the environment, but they will be high paying, interesting, and provide collective rights. This literature is built on mythologies about economics, forecasting, and technology.

Myth: Creating green jobs will boost productive employment.
Reality: Green jobs estimates include huge numbers of clerical, bureaucratic, and administrative positions that do not produce goods and services for consumption.

Myth: Green jobs promote employment growth.
Reality: By promoting more jobs instead of more productivity, the green jobs described in the literature encourage low-paying jobs in less desirable conditions. Economic growth cannot be ordered by Congress or by the United Nations. Government interference – such as restricting successful technologies in favor of speculative technologies favored by special interests – will generate stagnation.

Myth: The world economy can be remade by reducing trade and relying on local production and reduced consumption without dramatically decreasing our standard of living.
Reality: History shows that nations cannot produce everything their citizens need or desire. People and firms have talents that allow specialization that make goods and services ever more efficient and lower-cost, thereby enriching society.

Myth: Imposing technological progress by regulation is desirable.
Reality: Some technologies preferred by the green jobs studies are not capable of efficiently reaching the scale necessary to meet today’s demands and could be counterproductive to environmental quality.